Estate Planning as a Career

Capital gains tax. Lets look first at the capital gains tax position of a transfer of property. On the assumption that the parent is UK resident and domiciled any transfer of property will be subject to UK capital gains tax. You’ll therefore need to calculate the gain arising and crucially to consider the offset of reliefs to reduce this gain.

It’s worth noting that the residence of the child is irrelevant for UK tax purposes. Therefore, even if they are tax resident in a tax haven, the UK resident and domiciled parent will still have to consider their own capital gains tax position.

As parents are classed as ‘connected’ with their children for capital gains tax purposes, any transfer from the parents to the child is treated as a market value transfer. As such, even though the children don’t pay any proceeds to the parent for the property when calculating the capital gain it is the market value of the property that needs to be considered.

The gain will therefore represent the uplift in value from the date of acquisition or probate value to the market value at the date of transfer. Note if the property was acquired before March 1982 there are special provisions that can apply to deem the cost to be the market value at March 1982.

What reliefs are offset?

It is the reliefs that can significantly reduce any capital gain. The main reliefs that any parent would be looking to consider to reduce the capital gain would be:

• Indexation relief if the property was acquired before April 1998. This adjusts the cost (or probate value) for the effects of inflation up until April 1998
• Taper relief. You’ll need to consider what type of property it is. If you’re looking at transferring a residential property it will nearly always be a non business asset. This will reduce the capital gain by up to 40 (more…)